It’s been a forgettable September, with broader stock markets continuing to sag into month’s end. Undoubtedly, October may not get any better, as rate fears mount again, causing additional pressure on many of the bid-up growth stocks that are at risk of a serious pullback.
Apart from the frothy tech scene, which has been bid up by high artificial intelligence (AI) hopes, there are numerous pockets of value that I believe contrarian investors should take advantage of, as the September sink continues for the broader TSX Index.
Whenever Mr. Market is so inclined to mark down the broader basket, you’re bound to find more opportunities to pay three quarters to get a full dollar, so to speak. At this juncture, the tech sector seems like too fast a falling knife to catch amid rising interest rates.
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September stock market selloff: Deep value plays get that much cheaper
Though younger investors who are brave and willing to sail through stormy waters may wish to punch their ticket to the likes of a freshly plunged tech play, I think most investors can find value without having to jump in harm’s way.
Although I think the recent September selloff is overdone, there’s no telling when the tides will turn. And that makes the market’s fastest-falling knives less of a timely play. As always, Mr. Market tends to overreact either way.
These days, Canadian bank stocks seem to be severely discounted after stumbling for most of the past year. Some Canadian banks are at risk of falling to new multi-year lows, making them intriguing dip-buys for investors seeking a bountiful dividend yield alongside a good chance at capital gains over the next three years.
Bank of Nova Scotia: International diversification at a huge discount
Bank of Nova Scotia (TSX:BNS), or Scotiabank, stands out as one of the best value plays that’s flying under the radar of most Canadian investors. As Canada’s most international bank, economic headwinds have weighed quite heavily. While emerging markets tend to accompany higher risk profiles for a shot at greater returns, I think many are doubting Scotiabank’s ability to generate alpha outside of the Canadian market.
Thus far, I don’t think you can say Scotiabank’s Latin American business has been a bright spot for the firm. For now, the reward hasn’t been quite worth the additional risks taken on. Of course, the coronavirus crisis and stalling economy haven’t done emerging markets any favours. Once macro headwinds subside, I think Scotiabank’s international business could go from discounted to favourable.
At around $62 per share, BNS stock is absurdly cheap. Currently, shares trade at 9.7 times trailing price to earnings to go with a 6.7% dividend yield. This dividend is safe and likely to keep growing through the years, as the bank rolls with the macro punches thrown its way.
Bottom line
Though untimely, Scotiabank stock stands out as a deep value play that may not have nearly as much downside as the rest of the market. Indeed, the stock has gotten used to being punished, with shares off around 34% from its high. If the market selloff continues, one has to think BNS stock ought to get a free pass since shares were never at all pricey to begin with.
